Blog

Key Points

• What is an HSA: A Health Savings Account lets people with high-deductible health plans save pre-tax dollars for qualified medical expenses like doctor visits, prescriptions, and dental care.
• The Triple-Tax Advantage: HSA contributions, earnings, and qualified withdrawals are all tax-free — and unlike FSAs, unused funds roll over year to year.
• A Smart Long-Term Strategy: HSA balances can be invested for long-term growth and funds can be withdrawn for non-medical expenses after age 65, making them useful for both short- and long-term planning.

We can’t control skyrocketing healthcare costs, but we do have a tool available for managing the expenses. Health Savings Accounts, or HSAs, have seen a dramatic rise in popularity in recent years. After you learn more about its benefits, you may understand why this is and may even consider it for yourself.

What Is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged savings account with a goal of helping people with high-deductible health plans pay for current and future medical expenses. 

While HSAs are often thought of as a short-term healthcare tool, they can also play a powerful role in long-term financial planning.

To be eligible for an HSA, you must be enrolled in a qualifying high-deductible health plan (HDHP). Once enrolled, you can contribute pre-tax dollars into your HSA and use those funds to pay for qualified medical expenses such as doctor visits, prescriptions, dental care, vision expenses, and even some over-the-counter items.

How HSAs Work

HSAs work in three ways, which is why they’re referred to as a triple-tax advantage. 

1. Contributions are tax-deductible (or made pre-tax through payroll).
2. Earnings grow tax-free.
3. Withdrawals for qualified medical expenses are also tax-free.

One of the major advantages of HSAs is that, unlike flexible spending accounts (FSAs), HSAs are not “use it or lose it.” The money rolls over year to year, and the account belongs to you, even if you change jobs or retire.

HSA Contribution Limits

The IRS sets contribution limits for HSAs each year. These limits vary depending on whether you have individual or family coverage, and individuals age 55 and older can make additional catch-up contributions. 

Since HSA limits change periodically, it’s important to check current guidelines or speak with a financial professional.

HSAs as a Long-Term Strategy

One of the most overlooked benefits of an HSA is its potential as a long-term savings vehicle. Many HSA providers allow you to invest your balance once it reaches a certain threshold. Over time, this can help offset rising healthcare costs in retirement.

After age 65, HSA funds can be withdrawn for non-medical expenses without penalty. Some of those withdrawals can be taxed as ordinary income, similar to other retirement accounts.

We recommend first consulting with a tax, legal or financial advisor to discuss personal circumstances, but an HSA may be a fantastic option for your short- and long-term healthcare expense management.